How Effective are Capital Controls?

Sebastian Edwards

NBER Working Paper No. 7413
Issued in November 1999
NBER Program(s):   IFM

In the aftermath of the East Asian crisis a number of authors have argued that capital mobility is highly destabilizing, and that emerging countries would benefit from restricting capital flows. In this paper I investigate, from a historical perspective, the effectiveness of capital controls. I deal with Tobin taxes, controls on outflows and controls on inflows. I argue that controls on outflows have seldom worked as expected. They introduce major distortions and breed corruption. Market-based controls on inflows - similar to those implemented by Chile - have the potential for lengthening the maturity of foreign debt. They are not very effective, however, in achieving other objectives, including a higher degree of monetary policy independence.

(320 K)

Published: Journal of Economic Perspectives, Vol. 13, no. 4 (Fall 1999): 65-84.

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